Internal controls are essential in any company but are even more critical in a small business environment. Without any controls or oversight, it is like leaving the door unlocked with the cash register drawer open hoping that no one will steal any money. Small business owners should consider the following simple recommendations to protect their assets and reduce the risk of fraud or embezzlement.
- The most important thing a small business owner can do is take an interest in the books by reviewing financial reports on a periodic and random basis.
- Owners should foster a culture of control by showing employees they are checking up on them. If an employee sees that they are left to do things with little or no oversight, there may be an opportunity to commit fraud.
- All businesses are encouraged to setup a written policy of integrity and ethics.
- Access to financial assets and information, including the accounting system, should be restricted and carefully controlled. Make sure there is a separation of duties where no single employee has too much responsibility within the system.
- Establish a policy for backing up financial data to ensure accurate and complete financial reporting.
- The owner should sign all checks. If someone else must have signature authority, authorize only ONE other person and make sure that person is someone different from the person who writes the checks. Always keep check stock under lock and key.
- Have monthly bank statements and cancelled checks mailed to the owner’s home address. The owner should carefully review the bank statements each month, flipping through the checks, verifying all vendors and signatures before taking them to the office.
- All invoices should be approved by the owner. If someone else must approve invoices, make sure that person is different from the person writing or signing checks.
- Payroll is often a company’s biggest expense and in an uncontrolled environment, it is an easy way to commit fraud. Watch for phantom employees, unapproved overtime, extra hours, salary changes and raises.
- Perform background checks on all new employees. Consider restricting access when and where possible.
For more information, contact your Tronconi Segarra & Associates advisor at 716.633.1373, or email Info@tsacpa.com.